Rafidah: Revive trade talks


Diverging agendas between the developed and developing nations resulted in the failure of the World Trade Organisation (WTO) Ministerial Conference in Cancun, Mexico, two months ago. But, writes International Trade and Industry Minister Datuk Seri Rafidah Aziz, the outcome of the meeting should not be cause for despair. She explains why the trade talks collapsed and calls on the WTO to focus on areas where convergance of views exists. 

MUCH has been said about the outcome of the 5th WTO Ministerial Conference in Cancun and its negative implications, in particular, for developing countries seeking greater market access for their exports.  

The stalled trade negotiation has also been labelled as being a setback to the multilateral trading system. Some claimed it created doubts about a viable multilateral trading system modelled upon a collective decision-making process.  

Such negative talk is counter-productive. The echoes of a similar scene in Seattle in 1999 also engendered similar pessimism in its aftermath, but the multilateral system endured to launch the Doha round of negotiations. 

Cancun is but a mid-term review of the negotiations. Ministers at this meeting had hoped to provide guidance to push forward the WTO negotiation to further liberalise trade in agricultural and industrial products and services for the mutual benefit of all its members. 

Failure to do so at this conference should not condemn this round of negotiations to a premature burial or to tag the WTO as an institution that is no longer effective. 

As a trade minister for 16 years and having sat through the previous rounds of negotiations, I would say that it is up to our collective efforts to revive the talks. 

We need to confine it to the core competencies of the WTO if we want the talks to succeed. The meeting in Cancun could not proceed beyond the discussion on the contentious “Singapore issues”, i.e. the relationship between trade and investment, trade and competition policy, transparency in government procurement and trade facilitation. 

These issues are also labelled “new issues” as they are considered by many as venturing beyond the traditional market access expertise of the WTO into a wider scope of domestic rule-making. Developed countries pushing for the four issues want global rules in these areas that most view as encroaching into the sovereign rights of nations. 

Most developing members argued that these issues were complex, with far reaching implications on their ability to pursue their development goals, and that careful study would be required. These concerns were met with strong insistence by some developed members such as the European Union, Japan and South Korea, on taking a decision in Cancun to commence negotiations on all the four new issues. 

 

Development in the Doha Development Agenda 

At the Fourth WTO Ministerial Conference in Doha in November 2001, ministers agreed on the Doha Development Agenda that placed development at the centre of the WTO work programme. We had drawn up a work programme that would focus on negotiations to improve market access in agriculture, non-agriculture products and services, and strengthen provisions on “special and differential treatment” for developing countries. 

Other mandated negotiations were on improving WTO agreements such as anti-dumping, dispute settlement rules and “compulsory licensing” under the agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) for the import of cheaper drugs to combat epidemics such as HIV/AIDS, malaria and tuberculosis. We had set earlier deadlines for completing work on these issues as they had been recognised to be of primary interest to developing countries.  

But despite several extensions of these deadlines, developed countries demonstrated a lack of commitment to resolve these issues. The failure to complete work on these issues led to a situation where the agenda in Cancun was over-loaded. Developing countries were frustrated and could only surmise that the developed members were not willing to keep to their side of the bargain struck in Doha. 

 

Agriculture negotiations  

The extensive use of agriculture subsidies and restrictive import barriers, particularly in developed countries, continue to distort the international agricultural trade. An Organisation for Economic Cooperation and Development (OECD) study published this year indicated that, in 2002, developed countries provided US$318bil in both direct and indirect subsidies to their farming sector. 

This protection of inefficient domestic producers and the huge subsidies continue to deny competitive producers, including those from developing countries, the opportunity to sell their products in these protected and other third-country markets. The high domestic subsidies in some countries have led to surplus production subsequently dumped on world markets with the aid of export subsidies. 

To address this distortion, countries agreed to establish a fair and market-oriented agricultural trading system and committed to the reduction and phasing-out of trade barriers and agricultural subsidies.  

To the developing countries, removal of agricultural subsidies was and remains the most critical component of agriculture negotiation in the WTO. Under the Uruguay Round agreement, developed countries have committed to reduce trade-distorting domestic subsidies by 20% over a six-year period, and developing countries by 13% over 10 years, beginning in 1995. In reality, this commitment still provides the developed members the ability to retain a very high level of domestic subsidies.  

WTO members also agreed that negotiations in the agricultural sector would resume in 2000. It has been almost four years and there is no clear decision to proceed as members, protective of their agriculture sector, balked at the commitment to undertake liberalisation of the agricultural sector.  

The EU-US proposal for agriculture negotiations tabled on Aug 13, 2003, sought to allow possible retention of a significant level of agriculture subsidies. This led to a counter proposal by a group of 21 developing countries seeking for greater curbs on the use of agriculture subsidies, including a “downpayment” during the first year of implementation. The eventual draft that was circulated for negotiations in Cancun tried to accommodate the needs of members, but remained contentious, particularly on export subsidies and the extension of the peace clause. The ability of developed countries like the US and EU to retain significant agriculture export subsidies would continue to pose unfair competition to exports from developing countries, including Malaysia’s palm oil.  

Developed countries like the EU and Japan, while reluctant to undertake reforms in agriculture, are in accord in seeking ambitious liberalisation commitments from developing nations in the non-agriculture or industrial products. 

It included a proposal to eliminate customs duty for selected sectors, supposedly of interests to “developing countries”. The problem with this proposal is that developing countries are also required to eliminate duties for these selected sectors which include textiles and clothing, and automotive parts and components, and this would threaten employment in some of the developing countries. 

This ambitious proposal ignored the fact that developing countries were persuaded by proponents at Doha to include non-agriculture products in the negotiations with a clear understanding that flexibilities and special and differential treatment would be accorded to them. 

 

New issues: Focusing WTO on domestic rule-making?  

At Doha, we agreed that WTO would continue discussions to clarify elements for multilateral frameworks on investment, competition policy, transparency in government procurement and trade facilitation, and that negotiations would begin if there was explicit consensus on the modalities (or approaches) for negotiations on these issues. It was not a foregone conclusion, as argued by some, that negotiations would take place after the Fifth Ministerial Conference in Cancun. 

Explicit consensus is a pre-requisite. Malaysia and most developing countries have been clear and unequivocal in saying that we are not ready to begin negotiations on these issues. As such, we objected to the inclusion in the draft Ministerial Statement of proposals for modalities to begin negotiations on these issues. 

Developing members are concerned that some members are seeking to turn WTO into an all-purpose supranational organisation by introducing global rules on new issues like investment, competition policy, government procurement and trade facilitation. Such issues have much to do with the sovereign rights of governments to determine domestic policies to achieve particular development goals. 

No responsible government can be expected to undertake such commitments that can deny her people the legitimate rights to exercise policy options in the pursuit of development, particularly when these same policy options had been exercised by the proponents of the “new issues” at the earlier stages of their development.  

Like other developing countries, Malaysia is concerned that having global rules on investments will hinder the ability of the government to screen the type of investments that we want to promote in the country given scarce resources. Multilateral rules could restrict the country’s ability to provide special incentives and privileges to local investors for social and strategic reasons as members may not be able to discriminate between local and foreign investors once they are allowed into the host country. 

Another contentious issue is multilateral rules on transparency in government procurement. It is universally acknowledged that government procurement is an important developmental tool. Developing countries, including Malaysia, seek to develop domestic enterprises to compete in the global environment through various approaches, including through the government procurement route. 

Global rules on competition seek to make the domestic market equally contestable between local and foreign enterprises. As non-discrimination is touted as one of the core principles of competition policy, WTO rules would remove preferential treatment given to promote local enterprises. This has wide-ranging implications on domestic industries in the face of an increasingly globalised and open economy. Countries that now promote global rules on competition have earlier ignored rules governing “arms-length” treatment of intra-company trade to promote giant multinational companies.  

In Cancun, the revised draft ministerial text issued on Sept 13, 2003, called for negotiations to commence on three of the four “new issues”, namely investment, transparency in government procurement and trade facilitation. This draft met with strong objections from most developing members. 

Many have speculated that the “new issues” was really a “red herring” meant to detract members from the core issues of WTO negotiation, i.e. market access, particularly the agriculture negotiations. Reports I received indicated that there was no broad support from the business community in the EU for the “new issues”. It had been a tactical ploy to further delay negotiations in agriculture. I strongly urge, once and for all, that we put to rest the need for WTO to venture into those contentious “new issues”. The price for developing countries to pay is too high, even for the removal of agricultural subsidies in developed countries.  

 

The way forward 

Malaysia remains committed to the multilateral trading system under the WTO. As the 18th largest exporter in the world, it is in Malaysia’s interest to pursue a speedy conclusion to the negotiations to provide a fresh impetus to global trade. To sustain the momentum, the draft ministerial text should be used as reference for further discussion, building on the areas where there have been convergence of views, such as on the framework for agriculture and non-agriculture negotiation. 

The WTO must focus on its core competencies of market access and establish a fair and equitable multilateral trading system. The WTO should focus on areas where there are convergence of views and not be engaged with issues that clearly do not have the support of a majority of its members.  

The outcome of the Cancun Ministerial Meeting should not be cause for despair. If it is not possible to conclude the negotiation by December 2004, it is to be expected given the ambitious agenda and the gaps that existed on many issues before this. An eventual success may be better served by adopting a more realistic agenda and timeframe.  

Negotiations post-Cancun must focus on the market access negotiations in agriculture, non-agriculture and services. These are the strength of the WTO as a multilateral trade organisation. Various modalities have been tabled, some having broader support than others. We can continue talks using these proposals, but this is only possible if members, particularly developed countries, have the political will to do so. 

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